The High Price of Non-Compliance: Penalties for Professionals under the Prevention of Money Laundering Act (PMLA)

 

The Ministry of Finance, Department of Revenue has issued a notification on May 03, 2023, amending Section 2 of the Prevention of Money-laundering Act, 2002. As per the amendment, financial transactions executed by practicing Chartered Accountants (CAs), Company Secretaries (CSs), and Cost and Works Accountants (CMAs) on behalf of their clients will now be covered under the ambit of the PMLA Act.

 

The Prevention of Money Laundering Act (PMLA) is a crucial piece of legislation in India that aims to prevent the circulation of illicit money. It requires certain professionals to comply with anti-money laundering measures when they execute financial transactions on behalf of their clients.This notification is a step towards ensuring that professionals who are intermediaries in financial transactions are held accountable for their actions and comply with the prescribed anti-money laundering measures.

 

In this article, we will discuss how the PMLA applies to Chartered Accountants (CAs), Company Secretaries (CSs), and Cost and Works Accountants (CWAs).

 

What is the PMLA?

 

The PMLA was enacted in 2002 to combat the menace of money laundering in India. The Act provides for the prevention of money laundering and the confiscation of property derived from or involved in money laundering. It also requires certain professionals to comply with anti-money laundering measures when they execute financial transactions on behalf of their clients.

 

Who are Covered Under the PMLA?

 

The PMLA applies to a wide range of professionals, including CAs, CSs, and CWAs, among others. These professionals are called "Reporting Entities" under the Act. The Reporting Entities are required to maintain records of all financial transactions executed by them on behalf of their clients and report any suspicious transactions to the appropriate authorities.

 

How Does the PMLA Apply to CAs, CSs, and CWAs?

 

Under the PMLA, CAs, CSs, and CWAs are considered as "Intermediaries" and are required to comply with the anti-money laundering measures prescribed under the Act. This means that these professionals must verify the identity of their clients, maintain records of all transactions, and report any suspicious transactions to the authorities.

 

As intermediaries, CAs, CSs, and CWAs are required to conduct Customer Due Diligence (CDD) for their clients. This involves verifying the identity of the client and determining the nature of the business relationship. The CDD process also includes identifying the beneficial owner of the client, who is the person who ultimately owns or controls the client.

 

CAs, CSs, and CWAs are also required to maintain records of all transactions executed by them on behalf of their clients. These records must be maintained for a period of at least five years from the date of cessation of the transaction.

 

In addition to maintaining records, CAs, CSs, and CWAs are required to report any suspicious transactions to the appropriate authorities. The reporting requirements are mandatory, and failure to comply with them can result in penalties or even criminal prosecution.

 

Consequences And Penalties For Non-Compliance of PMLA Attracted By Professionals

 

Under the Prevention of Money Laundering Act (PMLA), professionals who are classified as "Reporting Entities," such as Chartered Accountants (CAs), Company Secretaries (CSs), and Cost and Works Accountants (CWAs), are subject to penalties and consequences if they fail to comply with the anti-money laundering measures prescribed by the Act.

 

If a Reporting Entity fails to comply with the provisions of the PMLA, they may be subject to the following consequences and penalties:

 

Monetary Penalty: The PMLA empowers the Director of the Enforcement Directorate to impose a monetary penalty of up to Rs. 10 lakh on a Reporting Entity for each violation of the Act.

 

Imprisonment: In case of a willful violation of the provisions of the PMLA, a Reporting Entity may be punished with imprisonment for a term that may extend up to seven years.

 

Suspension/Cancellation of License: The PMLA also empowers the Director of the Enforcement Directorate to suspend or cancel the registration or license of a Reporting Entity in case of a violation of the provisions of the Act.

 

Damage to Reputation: Non-compliance with the provisions of the PMLA can damage the reputation of a Reporting Entity, resulting in a loss of clients and business.

 

It is important to note that the consequences and penalties for non-compliance with the PMLA can be severe and may have long-term consequences for the professional and their business. Therefore, it is essential for Reporting Entities to ensure that they comply with the anti-money laundering measures prescribed under the Act and to report any suspicious transactions to the appropriate authorities to avoid penalties and consequences.

 

Scope of  Lawyers' and Advocates' Obligations under the PMLA and Other Anti-Money Laundering Laws   Advocates/Lawyers are not explicitly included under the ambit of the PMLA. However, they are required to comply with the provisions of the PMLA to the extent that they act as intermediaries in financial transactions.   Under the PMLA, an intermediary is defined as a person who carries on a profession that deals with the buying or selling of goods or services, or the providing of services related to the investment, lending, or managing of money or assets. This includes CAs, CSs, and CWAs, but does not explicitly include lawyers or advocates.   However, lawyers and advocates may be considered intermediaries under certain circumstances. For example, if a lawyer or advocate acts as a conduit for a client's financial transactions, or if they provide advice or assistance in the buying or selling of assets or investment, they may be considered intermediaries under the PMLA.   In such cases, lawyers and advocates are required to comply with the anti-money laundering measures prescribed under the PMLA. This includes conducting Customer Due Diligence, maintaining records of transactions, and reporting any suspicious transactions to the authorities.   It is important to note that lawyers and advocates are also subject to other laws and regulations related to anti-money laundering and counter-terrorism financing. For example, the Bar Council of India has issued guidelines requiring lawyers to comply with anti-money laundering measures, and the Financial Action Task Force (FATF) has recommended that lawyers be subject to anti-money laundering requirements.   In conclusion, while lawyers and advocates are not explicitly included under the ambit of the PMLA, they may be considered intermediaries under certain circumstances and are required to comply with anti-money laundering measures when they act as intermediaries in financial transactions.  suitable heading

 

Conclusion

 

The PMLA is a crucial piece of legislation that aims to prevent the circulation of illicit money in India. It requires certain professionals, including CAs, CSs, and CWAs, to comply with anti-money laundering measures when they execute financial transactions on behalf of their clients. As intermediaries, these professionals must conduct Customer Due Diligence, maintain records of all transactions, and report any suspicious transactions to the authorities. By complying with these requirements, CAs, CSs, and CWAs can help to prevent money laundering and promote a more transparent and accountable financial system in India.

 

 

Refer Below mentioned link to read notification   https://www.legalmantra.net//admin/assets/upload_image/documents/ca-cma-cs-pmla-under-some-scenarios-1-471053.pdf

 

Article Compiled by:-

Mayank Garg

(LegalMantra.net Team)

+91 9582627751

Disclaimer: Every effort has been made to avoid errors or omissions in this material in spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice which shall be taken care of in the next edition In no event the author shall be liable for any direct indirect, special or incidental damage resulting from or arising out of or in connection with the use of this information Many sources have been considered including newspapers, Journals, Bare Acts, Case Material. Charted Secretary etc.

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